Risk Aversion Relates to Cognitive Ability: Preferences or Noise?

TY - JOUR

T1 - Risk Aversion Relates to Cognitive Ability

T2 - Preferences or Noise?

AU - Andersson, Ola

AU - Holm, Håkan J.

AU - Tyran, Jean-Robert Karl

AU - Wengström, Erik

N1 - JEL: C81, C91, D12, D81

PY - 2016

Y1 - 2016

N2 - Recent experimental studies suggest that risk aversion is negatively related to cognitive ability. In this paper we report evidence that this relation might be spurious. We recruit a large subject pool drawn from the general Danish population for our experiment. By presenting subjects with choice tasks that vary the bias induced by random choices, we are able to generate both negative and positive correlations between risk aversion and cognitive ability. Structural estimation allowing for heterogeneity of noise yields no significant relation between risk aversion and cognitive ability. Our results suggest that cognitive ability is related to random decision making, rather than to risk preferences.

AB - Recent experimental studies suggest that risk aversion is negatively related to cognitive ability. In this paper we report evidence that this relation might be spurious. We recruit a large subject pool drawn from the general Danish population for our experiment. By presenting subjects with choice tasks that vary the bias induced by random choices, we are able to generate both negative and positive correlations between risk aversion and cognitive ability. Structural estimation allowing for heterogeneity of noise yields no significant relation between risk aversion and cognitive ability. Our results suggest that cognitive ability is related to random decision making, rather than to risk preferences.

U2 - 10.1111/jeea.12179

DO - 10.1111/jeea.12179

M3 - Journal article

SN - 1542-4774

VL - 14

SP - 1129

EP - 1154

JO - Journal of the European Economic Association

JF - Journal of the European Economic Association

IS - 5

ER -